Materi Akuntansi Keuangan (The Accounting Cycle)

THE ACCOUNTING

CYCLE:

Capturing Economic Events

Chapter

3

Presented by:

Endra M. Sagoro

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The Role of Accounting Records

Establishes accountability for

assets and transactions.

Keeps track of routine

business activities.

Obtains detailed information

about a particular transaction.

Evaluates efficiency and

performance within company.

Maintains evidence of

The Ledger

The entire group of

accounts is kept

together in an

accounting record

called a

ledger

.

Cash

Accounts

Payable

Capital

Stock

Accounts

are

individual records

showing

increases

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The Use of Accounts

Increases

are

recorded on one side

of the T-account, and

decreases

are

recorded on the other

side.

Left

or

Debit

Side

Right

or

Credit

Let’s see how

debits and credits

are recorded in the

Cash account for

JJ’s Lawn Care

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Cash

5/1 8,000

5/2 2,500

5/25

75

5/8 2,000

5/29

750

5/28

150

5/31

50

5/31 4,125

Bal.

Receipts

are on

the debit

side.

Payments

are on the

credit

side.

The balance is the

difference between

the debit and credit

A

=

L

+

OE

ASSETS

Debit

for

Increase

Credit

for

Decrease

EQUITIES

Debit

for

Decrease

Credit

for

Increase

LIABILITIES

Debit

for

Decrease

Credit

for

Increase

Debits and credits affect accounts as

follows:

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A

=

L

+

OE

Debit

balances

Credit

balances

=

In the double-entry accounting system,

every transaction is recorded by equal

dollar amounts of debits and credits.

Let’s record

selected

transactions for

JJ’s Lawn Care

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

May 1: Jill Jones and her family invested $8,000

in JJ’s Lawn Care Service and received 800 shares

of stock.

Will Cash increase

or decrease?

Will Capital Stock

increase or

Capital Stock

5/1 8,000

Cash

5/1 8,000



May 1: Jill Jones and her family invested $8,000

in JJ’s Lawn Care Service and received 800 shares

of stock.

Cash increases

$8,000 with a debit.

Capital Stock

increases $8,000

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

May 2: JJ’s purchased a riding lawn mower

for $2,500 cash.

Will Cash increase

or decrease?

Will Tools &



May 2: JJ’s purchased a riding lawn mower

for $2,500 cash.

Tools & Equipment

5/2 2,500

Cash

5/1 8,000

5/2 2,500

Cash decreases

$2,500 with a credit.

Tools & Equipment

increases $2,500

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

May 8: JJ’s purchased a $15,000 truck. JJ’s

paid $2,000 down in cash and issued a note

payable for the remaining $13,000.

Will Truck increase

or decrease?

Will Cash and

Notes Payable



May 8: JJ’s purchased a $15,000 truck. JJ’s

paid $2,000 down in cash and issued a note

payable for the remaining $13,000.

Truck

5/8 15,000

Cash

5/1 8,000

5/2 2,500

5/8 2,000

Notes Payable

5/8 13,000

Truck increases

$15,000 with a debit.

Cash decreases

$2,000 with a credit.

Notes Payable

increases $13,000

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

May 11: JJ’s purchased some repair parts for

$300 on account.

Will Tools &

Equipment increase

or decrease?

Will Accounts



May 11: JJ’s purchased some repair parts for

$300 on account.

Tools & Equipment

increases $300 with

a debit.

Accounts Payable

increases $300 with

a credit.

Tools & Equipment

5/2 2,500

5/11

300

Accounts Payable

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

May 18: JJ’s sold half of the repair parts to

ABC Lawns for $150, a price equal to JJ’s cost.

ABC Lawns agrees to pay JJ’s within 30 days.

Will Tools &

Equipment increase

or decrease?

Will Accounts



May 18: JJ’s sold half of the repair parts to

ABC Lawns for $150, a price equal to JJ’s cost.

ABC Lawns agrees to pay JJ’s within 30 days.

Tools & Equipment

decreases $150 with

a credit.

Accounts Receivable

increases $150 with

a debit.

Tools & Equipment

5/2 2,500

5/18

150

5/11

300

Accounts Receivable

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In an actual accounting system, transactions

are initially recorded in the

journal

.

GENERAL JOURNAL

Date

Account Titles and Explanation

Debit

Credit

2003

May 1 Cash

8,000

Capital Stock

8,000

Owners invest cash in the business.

Posting Journal Entries to the Ledger

Accounts

Posting

involves

copying

information

from the

journal to the

ledger

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GENERAL JOURNAL

Date

Account Titles and Explanation

Debit

Credit

2003

May 1 Cash

8,000

Capital Stock

8,000

Owners invest cash in the business.

General Ledger

Cash

Date

Debit

Credit

Balance

2003

GENERAL JOURNAL

Date

Account Titles and Explanation

Debit

Credit

2003

May 1 Cash

8,000

Capital Stock

8,000

Owners invest cash in the business.

General Ledger

Capital Stock

Date

Debit

Credit

Balance

2003

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GENERAL JOURNAL

Date

Account Titles and Explanation

Debit

Credit

2003

May 2 Tools & Equipment

2,500

Cash

2,500

Purchased lawn mower.

Let’s see what the cash account looks like after

posting the cash portion of this transaction for

JJ’s Lawn Care Service.

General Ledger

Cash

Date

Debit

Credit

Balance

2003

May

1

8,000

8,000

2

2,500

5,500

This ledger format is referred to as a

running balance

(as opposed to simple

T accounts).

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Net income is not an asset



it’s an increase in

owners’ equity from profits of the business.

A

=

L

+

OE

Increase

Decrease

Increase

Either (or both) of these

effects occur as net income

is earned . . .

. . . but this is

what “net income”

really means.

A

=

L

+

OE

Retained Earnings

Capital

Stock

Retained

Earnings

The balance in the

Retained Earnings

account represents

the total net income of the corporation over the entire

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Revenue and Expenses

The price for

goods sold

and services

rendered during a

given accounting

period.

Increases

owner’s equity.

The costs of

goods and

services used up

in the process of

earning revenue.

Decreases

The Realization Principle: When

To Record Revenue

Realization Principle

Revenue should be

recognized at the

time goods are sold

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The Matching Principle: When To

Record Expenses

Matching Principle

Expenses should be

recorded in the

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EQUITIES

Debit

for

Decrease

Credit

for

Increase

CAPITAL STOCK

Debit

for

Decrease

Credit

for

Increase

DIVIDENDS

Credit

for

Decrease

Debit

for

Increase

Payments to

owners

decrease

owners’

equity.

Owners’

investments

increase

owners’

equity.

Let’s analyze the

revenue, and

expense

transactions for

JJ’s Lawn Care

Service for the

month of May.

We will also

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

May 29: JJ’s provided lawn care services for

a client and received $750 in cash.

Will Cash increase

or decrease?

Will Sales Revenue

increase or

Sales Revenue

5/29

750



May 29: JJ’s provided lawn care services for

a client and received $750 in cash.

Cash increases

$750 with a debit.

Sales Revenue

increases $750 with

a credit.

Cash

5/1 8,000

5/2 2,500

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

May 31: JJ’s purchased gasoline for the lawn

mower and the truck for $50 cash.

Will Cash increase

or decrease?

Will Gasoline

Gasoline Expense

5/31

50



May 31: JJ’s purchased gasoline for the lawn

mower and the truck for $50 cash.

Cash decreases $50

with a credit.

Gasoline Expense

increases $50 with a

debit.

Cash

5/1 8,000

5/2 2,500

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

May 31: JJ’s Lawn Care paid Jill Jones and

her family a $200 dividend.

Will Cash increase

or decrease?

Will Dividends

increase or

Dividends

5/31

200



May 31: JJ’s Lawn Care paid Jill Jones and

her family a $200 dividend.

Cash decreases

$200 with a credit.

Dividends increase

$200 with a debit.

Cash

5/1 8,000

5/2 2,500

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Now, let’s look at

the Trial Balance

for JJ’s Lawn Care

JJ's Lawn Care Service

Unadjusted Trial Balance

May 31, 2003

Cash

$

3,925

Accounts receivable

75

Tools & equipment

2,650

Truck

15,000

Notes payable

$

13,000

Accounts payable

150

Capital stock

8,000

Dividends

200

Sales revenue

750

Gasoline expense

50

Total

$

21,900

$

21,900

All balances

are taken from

the ledger

accounts on

May 31 after

considering all

of JJ’s

transactions

for the month.

Proves equality

of debits and

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Journalize

transactions.

Post entries to

the ledger

accounts.

Prepare trial

balance.

Make

end-of-year

adjustments.

Prepare adjusted

trial balance.

Prepare

financial

statements.

Prepare after closing

trial balance.

Journalize and

post closing

entries.

Reference

Williams et al. 2011.

Financial and Managerial Accounting: The Basis for